Seoul to unveil wage peak funding plan

Policymakers are scheduled to unveil detailed measures to promote employment of the elderly later this month, targeting a soft implementation of a national wage peak system in the overall industry.

The National Assembly passed a bill in April 2013 that would make it mandatory for the public sector and big businesses with 300 or more employees to extend the retirement age to 60 or above from 2016 and others, including small businesses, from 2017.

The wage peak system will extend the retirement age to 60 from the current ages that range between 53 and 58. Instead, the paycheck for the elderly will be slashed by about 10 percent in the last several years at work.

“Economy-related ministries have been in close consultation on the state project under which the government will fund the businesses introducing the system,” said an official of the Ministry of Employment and Labor.

Companies that have already adopted the system will be funded 8.4 million won ($8,150) per year for each worker in his or her 50s if the company employs the worker until age 60.

The official noted that the Labor Ministry is trying to persuade the Ministry of Strategy and Finance into raising the state-funding from the current 8.4 million won per employee.

He added that one issue is how the government will minimize backlash from taxpayers involving young workers in their securing the new budget.

To facilitate the implementation of the government’s plan to extend the retirement age to 60 starting in 2016, a tripartite group of labor, business and the government has already shared the view that a successful wage peak system should help companies reduce the financial burden from the extended retirement age.

The government is also expected to encourage businesses to consider placing a wage ceiling for highly paid executives so that they can hire more young employees or improve conditions for irregular workers.

As another key policy, the government seeks to induce industries into revamping their salary payment structures.

Currently, around 70 percent of local businesses whose payroll has more than 100 workers uses the “step payment” system in accordance with their working years.

The Labor Ministry plans to unveil three payment structures, aimed at performance-based wages, in the coming detailed measures. By benchmarking some European models, it is considering introducing two more structures next year.

The September measures will also include state-led life design programs for workers in their 50s.

When a worker turns 50, the programs will provide him or her with step-by-step ways to prepare for “reemployment” during the worker’s remaining working years.

Government officials expect the coming measures to pave the way for President Park Geun-hye’s campaign pledge to raise the nation’s employment rate to 70 percent by 2017 from the present 59 percent.

They forecast that the baby boomer generation, which refers to people born between 1955 and 1963 in Korea, will have greater opportunity for more work or reemployment. The number of baby boomers is estimated at 7.1 million, or 14.6 percent of the nation’s total population.

Samsung Electronics has announced that it would early adopt the wage peak system this year, while Hyundai Motor unionized workers are opposing the implementation.